KinsellaTax 2014 Ltd point out that penalties are becoming hugely difficult and expensive under the new implementation of the new penalty regime.

The most important parts of the new penalty regime are set out in four schedules to the Finance Acts of 2007-2009.

For instance:

  • Finance Act 2007 schedule 24 concerning inaccuracies in a return or other documents.
  • Finance Act 2008 schedule 41 concerning failure to notify chargeability to tax and certain kinds of misconduct peculiar to VAT and excise duties.
  • Finance Act 2009 schedule 55 concerning late filing of returns and other documents.
  • Finance Act 2009 schedule 56 concerning late payments of tax.

In addition to this of course there are extensive provisions of a serious compliance related nature, namely those concerning dishonest agents, tax avoidance schemes, information powers and data gathering and the “naming and shaming” of deliberate defaulters.

So, all in all completely changed and HMRC are now using these powers to bring in huge amounts of money by way of penalties.

Unfortunately, most of the new regime has been implemented on a bit by bit fashion and have been subject to amendments before and/or after implementation.

For instance, schedule 24 of FA 2007 was in relation to income tax, corporation tax, capital gains tax and VAT liabilities for periods commencing on or after 01 April 2008. It has been extended to cover other taxes and duties since that time.

Further complications mean that important parts of the new penalty regime have not been brought into force (late filing and late payment penalties relating to RHC and SDLT and certain other taxes being good examples). In not well advertised instances there is doubt as to whether the implementation of new penalties follow immediately upon the repeal of the old regime predecessors.

It is therefore vital for advisors to check whether the new regime penalty in question was enforced in relation to the tax in question at the time in question. If the answer is no, the same question must be asked in relation to any equivalent old regime penalty.

So, there you are, it’s absolutely essential your consultant is well aware of the new penalty regime in order to advise you properly and with confidence. Also, KinsellaTax 2014 Ltd say you need to test HMRC as it persistently tries to invoke “deliberate” behaviour where penalties start at 35% minimum and goes up to 70%, which is incredible. We recently fought a £415,000 penalty HMRC sought to enforce having it reduced to £60,000, which was 15% of the tax. So don’t be pushed into agreeing penalties without taking as much care as one would in agreeing tax on undeclared/omitted income.

If one remembers, going back to VAT, it was described as a simple tax, easily manageable (certainly by consultants, accountants etc) but of course we know how that’s gone and KinsellaTax’s guess is the penalties regime will expand in the same way.

So, it’s all well and good to agree a tax liability but to have it uplifted by almost 100% by way of interest and penalties. Penalties starting somewhere in the region of 35% for deliberate, which HMRC always seem to be chasing so they get 35-70% uplift in the tax liability as a penalty.

That leaves taxpayers in the invidious position of being fair game. We have instances where we have been referred to cases where one year has been agreed at say £10,000 and then they have been uplifted going back a further five years to something like £50,000. Then there has been a tax penalty and interest which brings it up to nearer £100,000. Usually these are very simple businesses that do not make huge amounts of money but cripples the owners who either have to sell the business or raise a mortgage on the house to pay for god knows how long to get back to the opposition.

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